Finance Ministry, Cairn Energy looking for amicable solution to tax dispute: Govt sources – Moneycontrol.com

The meeting between Cairn Energy CEO Simon Thomson and finance secretary Ajay Bhushan Pandey comes amid speculation that India is set to challenge an international arbitration award that went against it over the retrospective levy of taxes.

FM Nirmala Sitharaman

FM Nirmala Sitharaman

Cairn Energy Plc Chief Executive Officer Simon Thomson met finance secretary Ajay Bhushan Pandey and Finance Ministry officials on February 18 to find an amicable solution to the controversial retrospective tax issue.

While the participants in the meeting declined to speak to the media, a person aware of the discussion in the meeting said that the Centre is looking to resolve the matter.

“While the tax department is in favour of challenging the ruling of the Permanent Court of Arbitration, many others including the political leadership are aware of what it would mean for investor sentiment,” the official said.

The meeting comes amid speculation that India is set to challenge an international arbitration award that went against it over the retrospective levy of taxes versus Cairn Energy. Early this week, the company had approached a US district court seeking to enforce a $1.2 billion arbitration award. There were also media reports the company is identifying Indian assets abroad, including bank accounts and even Air India planes or ships that could be seized if India fails to pay the arbitration award.

A Cairn Energy spokesperson refused to comment on the issue.

In December 2020, a Permanent Court of Arbitration at The Hague ruled that the Indian government should pay damages worth $1.2 billion to the company and the case of retrospective tax was wrongly applied on Cairn.

In 2006-07, as part of an internal rearrangement, Cairn UK transferred shares of Cairn India Holdings to Cairn India. The Indian tax authorities had claimed that that the company had made capital gains during this transaction, which happened ahead of the initial public offering (IPO) of Cairn India. The authorities had slapped a tax demand of Rs 24,500 crore on the company.

Though Cairn Energy sold its majority stake in Cairn India to Anil Agarwal-led Vedanta Ltd in 2011, it continued to hold a minority stake of 9.8 percent in the company. Later the government of India had frozen the dividend payment by Cairn India to Cairn Energy. To partially recover the tax demand, the income tax department had attached some shares of Cairn energy in Cairn India and had sold it in 2018.

Arup Roychoudhury

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